Greece’s budget cuts must be
accompanied by policies to help the economy emerge from the
current crisis, Nobel Prize winner Christopher Pissarides wrote
in an article published by Kathimerini newspaper.

Pissarides, who shares the 2010 Nobel Prize in Economic
Sciencies with Dale Mortensen and Peter Diamond, said the
country should cut corporate taxes and reduce the number of
state workers to revive the economy. An annual growth rate of 4
percent would enable the country to meet its borrowing
obligations and improve productivity, he said.

“The austerity measures and economic reform” should be
accompanied “by a very strong program of development policies
in order to remove the country from the vicious circle of rising
unemployment and bankruptcies,” Pissardes wrote in the Athens-
based newspaper today. The article was co-written with Costas
Azariadis, a professor at Washington University, and Yannis
Ioannides, a professor at Tufts University.

Greece’s government has raised taxes and cut pensions and
wages to reduce the European Union’s second-largest budget
deficit. The draft budget forecasts an increase in unemployment
to 14.5 percent in 2011, the highest in more than a decade, from
9.5 percent last year, as the economy continues to contract.

The authors said taxes on companies should be cut to 10
percent to help boost foreign direct investment, while the
introduction of Individual Retirement Accounts could attract
savings equivalent to 5 percent of gross domestic product within
a decade, according to the article.

Public payrolls should be cut to 700,000 by 2015 from 1.1
million through the sale of state companies, which would reduce
the wage bill by 8.6 billion euros (11.9 billion), according to
the article. Giving companies the right to build and maintain
infrastructure such as roads and airports tax free for 30 years
would lift productivity by as much as 40 percent, it said.

Without radical measures, the income of Greeks will fall to
about 72 percent of the EU average from 95 percent, Pissarides
and his co-authors said. Their 14 measures would help increase
labor productivity to 120 percent of the EU average by 2020 from
80 percent and create 1.2 million new private jobs, they said.